September 14, 2011

Axiata lacks catalysts in the short term

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: MAYBANKPrice Call: HOLDTarget Price: 5.10



Axiata Group Bhd
(Sept 14, RM4.79)
Maintain hold at RM4.81 with revised target price of RM5.10 (from RM5.50): Axiata's Analyst Day was an opportunity to catch up on'' developments at the'' subsidiaries. We see little share price catalyst for the group in the near term in a challenging environment, with stiff competition particularly in Indonesia, Cambodia and locally. We raise our cost of equity to 11.8% from 11.1% and sum-of-parts target price is cut to RM5.10 from RM5.50.

XL is taking steps to mitigate the downtrend in subscribers caused by heightened competition and is seeing some positive results. The aggressive rollout of its data network will enable it to sustain strong long-term growth from this segment. Prospects for Dialog are bright, given its market dominance and expected strong economic growth of at least 8% for Sri Lanka.

Axiata expects to inject US$75 million (RM232 million) to US$125 million into Robi in Bangladesh to partly fund the spectrum renewal fees, which are expected to settle at about US$250 million. In Cambodia, competition remains stiff. Amid aggressive pricing, Hello is just breaking even at the earnings before interest, tax, depreciation and amortisation (Ebitda) level. The market is likely to see consolidation and Axiata will have to decide over the next year or two how it intends to participate in this process.

The third quarter should see a decent performance, with indications of better year-on-year pre and post Hari Raya Aidilfitri sales. Management hopes to conclude negotiations soon on HSBB collaboration with Telekom Malaysia Bhd . This is unlikely to improve group margins but it provides for sustainable data revenue streams.

Management said it continues to be on the lookout for mergers and acquisitions in its main markets. It would appear that group capital expenditure is likely to trend lower from next year, thus providing room for better payouts. ' Maybank IB Research, Sept 14


This article appeared in The Edge Financial Daily, September 15, 2011.

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